The highlights of the Supply Chain Management (SCM) software market forecast results compiled by analyst firm Gartner Inc. (subscription required or purchase opportunity) have been shared by various media outlets, including Manufacturing Business Technology and Industry Week among others. Thru this venue, I would like to share some of my personal high level observations regarding this technology market.
First, in full disclosure, I have intimate familiarity, as well as bias with the history of the SCM software market. I have been a supply chain technology industry analyst at two different research firms, where I provided background commentary and analysis of the market going back to the year 2000. I have also had SCM product marketing leadership and ERP consulting roles with various software companies including SAP and Oracle, where strategic product planning was predicated on accurate analysis of customer buying patterns and needs.
According to Gartner, spending on SCM software reached $6 billion in 2007, increasing an eye-popping 17.6% over 2006. As was the case in 2005 and 2006, SAP remains the market leader with 22.4% market share, but Oracle and JDA Software have made significant gains as well. Market consolidation continues with 25 acquisitions and mergers reported for 2007, but certain best-of-breed vendors who continually deliver customer value in their applications remain as market participants, or market entrants.
Since 2005, many of the analyst firms providing market forecasts pegged a relatively conservative market growth forecast to the SCM space, roughly a conservative growth rate of 5-6%, in line with the overall projected growth of IT software applications. Other market areas such as CRM, business intelligence, and Web 2.0 based applications were forecasted at much higher market growth rates, the notion being that these investments were more attractive for customers. In my view, the fact that the 2007 SCM market grew an eye-popping 18% in 2007 is a reflection of the fact that supply chain process investment needs have reached the top-tier of various company IT investment priority lists. With more and more supply chains being stretched in global complexity, coupled with the continuing needs for delivering bottom-line cost savings in light of unprecedented raw material cost increases, it should be no surprise that technology is seen as an enabler of innovation and change. Supply chain processes are often business mission-critical, and when the environment is super challenged, investment money is appropriated over other process areas. In 2001, many of the SAP or Oracle ERP customers remained on the sidelines, inserting select best-of-breed applications, waiting for the respective SCM suites to mature. That has obviously changed.
A final observation for this post relates to some of the market dynamics behind these numbers. SAP’s SCM revenues grew by almost 32% in 2007 according to Gartner; SAP has not had any significant suite functionality releases for the past two years, due to the overall continued transition to the core applications of SAP Business Suite 2008. In my view, this is an indication that SAP SCM customers are weighting enterprise integration and the 80% is good enough rule over superior functionality. Oracle and JDA on the other hand present a different scenario in their 26% and 67% respective market growth rates. Both of these companies have turned to acquisitions to fill-in gaps for best-of breed technology in planning, transportation, trade compliance and other areas. Their strategy of offering ala-carte best-of-breed with certain levels of integration are apparently equally attracted for the market. I will go out on a limb and predict that when the 2008 market actuals are released one year from today, SCM will remain a robust area of investment, and there may be even more surprises in the ranking of the top three.